Wednesday, June 12, 2024

One Parent Different Brands: Its Advantages And Disadvantages

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Ever wondered why a company launches products under different brands sometimes? Yes, there are benefits of being able to differentiate between target audiences, but it does not stop there. There’s more you can achieve by having different brands working under the same umbrella, working towards fulfilling the same goal.

It was in the month of May 2021 that an organisation outnumbered Maruti Suzuki in terms of car sales. What happened perhaps for the first in the recent history of India involves Hyundai and Kia selling approximately 3,000 more cars than Maruti Suzuki. But how does that relate to the business of electronics? Well, the answer lies in a strategy that relies on not just a parent organisation but also the brands that stem out of that particular company.

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In terms of electronics, one such clear example is that of BBK Electronics in China. BBK owns consumer electronics brands Oppo, Vivo, Oneplus, Iqoo, Realme, and more. Today, the smartphone sales of these brands together outnumber the sales of smartphones done by any other brand. Not just the Chinese, even Korean brand Samsung has followed this strategy longer than one can remember. JBL and Harman are two among various other brands that Samsung owns and have been doing quite well for the company. What’s this strategy all about? Let’s find out!

The target audience

The key to understanding or formulating a plan towards going one-parent-different-brands strategy probably revolves around the target audience one wants to address. Considering BBK and the brands it operates in the country, it becomes evident that each of the company’s brands serves a different target audience.

Starting with Realme, this brand was originally launched to compete in the price-sensitive smartphone segment in the country. On its first launch, it locked horns with the likes of Mi and other smartphone models priced under `15,000 in India. Realme’s first smartphone in the country was launched at a price of approximately `10,500. It then took on the rising Xiaomi and the already settled Samsung budget-friendly smartphones in the country. The marketing and sales strategy that the brand followed in India has been quite similar to that followed by its closest rival Mi.

The market share of Realme during the first quarter of 2021 (in terms of shipment volume) was close to just 5.1% (IDC Report). Its direct competitors, Samsung and Mi, held close to 19% and 27.2% market share during the same quarter, respectively.

“BBK has one of the best strategies when it comes to targeting different segments of consumers. There is at least one brand positioned in every segment, and the best part is that all these brands follow different marketing strategies,” says an analyst not wishing to be named.

Oppo and Vivo, BBK’s other smartphone brands, which were probably initially launched to target the `15,000 to `25,000 smartphones segment in the country, held 4.7% and 6.6% market share during the same quarter, respectively. The smartphones launched by these two brands have been locking horns with other mid-range smartphones in India from the very beginning.

The combined sales figures of Vivo, Oppo, and Realme for the quarter stood at around 15.4% of the total market share. Comparing these with the market share of the Xiaomi and Samsung answers how well the strategy of having multiple brands catering to different target audiences has worked out for BBK. It is worth mentioning here that the sales figures of OnePlus and Iqoo are not included in these numbers.

BBK’s OnePlus has been projected as a flagship smartphone brand, from the beginning. Tech gurus have been comparing OnePlus smartphones with the flagship models offered by Samsung and Apple in India and in other countries as well. Several reports by Counterpoint Research and IDC have declared OnePlus as the clear winner. Iqoo is the newest brand on the block from the house of BBK.

“You can breach both the online and offline channels using the same products by white labeling into different brands. The same helps penetrate online via a different strategy than the offline despite the products being quite similar to each other,” says the analyst.

Evolution beyond the target audience

The other advantage of having a multiple brands strategy is in getting the room to play and extend your target audience. For instance, Oppo and Vivo both have forayed into the flagship smartphone market and have started offering smartphones that cost above `50,000. The step, from the house of BBK, came right after the organisation was able to create dedicated fan following and communities for these two brands. There is a high chance that consumers using phones from these brands would upgrade to their flagship models due to customer loyalty.

Oneplus, which has till now been known as the flagship smartphone brand from the house of BBK, started offering its first below `30,000 smartphone in 2019-20. The move might have helped BBK to attract consumers who were looking for a flagship name without having to spend flagship amounts. It is rumored that OnePlus will also be launching a below `20,000 smartphone this year.

“Once you have successfully created a brand image, it becomes easier to launch new product categories under the same brand name. This is generally done keeping the loyalty of consumers in mind. Moreover, if you can give them a good product, it also becomes essential for the brand to give them more such good products,” says the analyst.

Xiaomi, one of the competitors to possibly all the smartphone brands in the world, has also done something similar with its sub brand POCO. The latter, which was originally introduced as a flagship brand years ago, has now started launching smartphones for the budget-friendly market. Several users have even posted comments noting that POCO smartphones are white labelled smartphones from Xiaomi.

And if playing and extending the circle of target audience was not enough, these smartphone brands have now started to evolve into complete consumer electronics brands. Oppo and Vivo have now started to offer smart bands and other wearables in the market while OnePlus and Realme now have smart TVs under their product portfolios. Similarly, Xiaomi is one of the market leaders in the smart TV market in India, and the company keeps on adding one or more product categories every now and then.

“If you associate a brand with a flagship image, you are bound to respect the brand when it launches a product in the affordable or less expensive segment. A lot of brands have followed this strategy earlier,” says the analyst.

Coming to the giant of the consumer electronics industry, Samsung’s is a story that needs more than one OTT series to explain what all it does. While most of us know Samsung as a big consumer electronics giant, only a few of us are aware of the fact that a lot of its competitors use display panels and other key components used in their TVs, smartphones, smartwatches, and other products that are sourced from Samsung. The Korea based tech giant however does not supply these key components under one brand name but different brands that operate under the umbrella of the parent brand called Samsung Electronics.

Some not so popular yet critical for the electronics industry brands owned by Samsung include Prismview that targets the manufacturing of light-emitting diode displays, Novaled that specialises in the research and development of organic materials and technologies for superior OLED displays, Nexus—a healthcare equipment maker, Harman International—engaged in the development, manufacture, and marketing of audio products and electronic systems, among others. Samsung also operates into the semiconductors space under the Samsung Semiconductors brand name.

Now not so famous in the smartphone arena, LG is another parent company that has its wings spread over to supplying components ranging from display panels to ones used in the automobile industry. As a matter of fact, both LG and Samsung are known to be amongst the biggest suppliers of display panels used by Apple in iPhones and other products it offers in the market.

Even the likes of Xiaomi and BBK are known to source components from the likes of Samsung. The one-umbrella-different-brands strategy has actually enabled these competitors in the end consumer market to do business with each other in the B2B market.

The greatest examples from India of how an electronics parent brand can evolve using different brands can be drawn from two organisations, namely, Super Plastronics Private Limited (SPPL) and Videotex International (Videotex). Both these organisations sell smart TVs under different brand names in India. While SPPL retails Thomson and Kodak brand TVs in the country, Videotex retails TVs under Shinco, Telefunken, and some other brands.

The unique selling point (USP) for these parent organisations is based on the fact that they can and have positioned different brands in different channels. One can easily find one brand going heavy in the online market and the other going heavy in the offline market.

Refer to these statements made in a report by IDC and one will find how Vivo (from the house of BBK) scored well in the offline market and Realme (also from the house of BBK) scored well in the online market. Both the statements refer to the same quarter performance.

First statement goes, “Vivo was at the third position, with shipments declining by three percent YoY. However, it continued to maintain its lead in the offline channel with a 29 percent share, ahead of Samsung. It regained its title sponsorship for the IPL cricket league, ensuring high decibel promotional activities around newly launched models in March and April of 2021.”

Second one states, “Realme slipped to the fifth slot after falling four percent YoY in 1Q21. It continued to be the third-largest online brand with a 16 percent share and more than two-thirds of its shipments going through the online channel. The company also launched the most affordable 5G model, the Narzo 30 Pro in 1Q21, expanding deeper into the 5G space.”

There have also been instances where a parent organisation has used a smaller, less known brand to test features of a product among users before embedding those features into the bigger and better known brands. For example, while OnePlus is said to be the flagship brand from the house of BBK, it never rolled out the gimbal camera feature in smartphones that were OnePlus branded. BBK, till now, continues to launch smartphones with gimbal cameras that are branded as Vivo. One can rightly anticipate that OnePlus will come out with a gimbal camera embedded on it anytime soon.

“Not all the brands have the capability to manufacture all the components used in a product. More often than not, new brands rely on established businesses like Samsung and LG to source components like memory semiconductors and display panels,” says the analyst.

The tax slabs

Sometimes entities registered with separate credentials in the country pay taxes according to the earnings they make, irrespective of the parent organisation that owns them. For instance, an electronics organisation originating from China but set up under different brand names in India could be paying taxes in accordance with the sales made by their different brands.

For example, if a parent company named A owns two brands by the name of B and C, it will pay taxes for these two brands if both of them are registered under name A in the country. However, if the brands B and C are registered in different capacities in the country, then both B and C will end up paying taxes for themselves.

This simply means that two smartphone brands operating under the same parent brand might end up paying less tax if these were registered as different companies. However, if the parent brand has to file taxes for them, it will end up paying more as the figures might attract higher tax slabs due to their combined profits.

The other advantage of the strategy can be in the form of closing down the not so good functioning brand economically. For example, if one of the smartphone brands of a parent company is not working out, the parent brand can choose to cease operations of the brand without affecting the performance of its other brands in the market.

There are a handful of consumer electronics brands in India which have ceased operations in terms of launching new products or categories but have partnered with international companies owing to the big channel of sales they were able to develop during the good times. Micromax, in 2019, had announced partnership with Huawei where the latter was looking to leverage the former’s channel of sales to expand in the country. Micromax, at that time was suffering from poor smartphone and other consumer electronics segment sales.

There have also been instances where a parent organisation has used a smaller, less known brand to test features of a product among users before embedding those features into the bigger and better known brands. For example, while OnePlus is said to be the flagship brand from the house of BBK, it never rolled out the gimbal camera feature in smartphones that were OnePlus branded.

The advantages of having a different brand strategy can work out for a lot of companies out there but the same requires detailed planning. From appointing product heads and teams that cater to different brands, to making sure that the brands complement each other and not compete with each other, it can be a perilous task, but time has proved that it is not an impossible task.

Mukul Yudhveer Singh is a business journalist at EFY


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